Tariff Uncertainty to Drive New Bankruptcy Cases Across Sectors

Bankruptcy professionals are keeping a close eye on tariffs, the trade war with China, unrest in the Middle East, and high interest rates in the US as they evaluate the restructuring landscape in the latter half of 2025.

With economic and regulatory shifts creating uncertainty for businesses across the US, the automotive, alternative energy, retail, and casual dining industries are especially vulnerable to financial strain due to their reliance on imported parts and materials—making them likely hot spots for bankruptcy work, attorneys said.

The confusion is compounded by conflicting statements from US Treasury Secretary Scott Bessent and President Donald Trump at the end of June regarding certain trade deadlines and when tariffs would be imposed.

As the July 9 trade deal deadline approaches, some companies teetering on the edge of bankruptcy will have to consider their options, including out-of-court alternatives, attorneys said.

Regulatory and macroeconomic shifts have lag time, so the economy is just beginning to see the greater impact now, said Robert Stark, the chair of Brown Rudnick’s bankruptcy and corporate restructuring practice.

The “wait-and-see scenario” surrounding tariffs may also hit consumers if companies try to pass on the higher costs of parts, supplies, and pieces of vehicles manufactured abroad, he said—signaling a potential uptick in both personal and corporate bankruptcies.

Solar, Automotive Industries

A slew of solar companies filed for bankruptcy in recent months, mostly due to lower incentives and less support from Trump. The administration’s de-emphasis on green energy is likely to lead others to file, said Robert Gayda, a partner in Seward & Kissel LLP’s corporate restructuring and bankruptcy group.

Solar panel manufacturer Meyer Burger placed its US subsidiaries into bankruptcy at the end of June, looking to sell their assets and citing competition from China and high production costs in Europe as part of the financial challenges.

Panel installer Sunnova Energy International Inc. and lender Solar Mosaic Inc. also filed for Chapter 11 last month.

“It’s not as feasible to maintain solar as it was previously,” said Mariaelena Gayo-Guitian, a partner at Venable LLP who focuses on insolvency and reorganization matters.

In the auto sector, products and services have become less affordable for consumers as taxes and interest rates increase. Marelli Holdings Co. blamed tariffs for its bankruptcy last month, worsening the Nissan Motor Corp. and Stellantis NV supplier’s already tenuous financial situation amid debt struggles and declining revenue.

SMT Automation, a small Michigan maker of manufacturing machinery, had to cut workers after hiring new staff and purchasing a new building, according to its president. The company’s ability to sell machines has become increasingly difficult as its customers, automakers, and part suppliers hold off on purchasing until tariffs are sorted out.

“The uncertainty around the effects of tariffs is something that is, given the broader economy, creating a pregnant pause,” said Seth Lieberman, the chair of Pryor Cashman LLP’s bankruptcy, reorganization and creditors’ rights group.

Industrywide Pressure

A spike in consumer bankruptcies is also on the horizon as companies shrink their workforces, bankruptcy professionals said. In addition to regulatory changes, tariffs, existing debt burdens, and interest rates, artificial intelligence is adding to the pressure on businesses.

Some employers—including restaurants, retail, and health-care companies—are also affected by voluntary and involuntary deportations, making hiring more difficult, said Daniel Gielchinsky, the co-founder of DGIM Law, who has represented creditors in bankruptcy.

Health-care bankruptcies are climbing because of rising costs in insurance reimbursements, leasing, and employee benefits and pay, Gielchinsky said. The Trump budget bill’s cuts to health-care spending won’t help the sector, attorneys noted.

The Federal Reserve may eventually cut interest rates, but it doesn’t help consumers and businesses that are struggling now, attorneys said.

“People are losing their jobs,” Gayo-Guitian said.

Additionally, unrest in the Middle East may lead to higher oil and gas prices that will further strain consumers and businesses, bankruptcy professionals said.

Global and domestic factors will put pressure on logistic companies—such as trucking and servicing businesses—and big box corporations as well, attorneys said.

Liability Management

Despite a New Year’s Eve decision out of the US Court of Appeals for the Fifth Circuit shutting down key elements of Serta Simmons Bedding LLC’s controversial liability management transaction, companies aren’t likely to be dissuaded from out-of-court debt restructuring strategies anytime soon, attorneys said.

To avoid formal bankruptcy filings, some businesses are using “creative ways to deal with liquidity issues,” said Leah Eisenberg, a partner at Pashman Stein Walder Hayden LLP who focuses on reorganization matters and default-related issues.

However, out-of-court strategies don’t guarantee that a company will fend off bankruptcy, meaning there could be a rise in Chapter 11 cases that began as liability management exercises and transactions, attorneys said.

There’s more scrutiny on companies “harmed by LMTs,” Eisenberg said.

LME and LMTs, whereby some existing lenders boost their repayment priority over others by providing new debt, usually occur behind the scenes, becoming public only when the deals are finalized.

“There is a concern over what repeated use of an LME means for the capital structure and financial health of a business,” Lieberman of Pryor Cashman said.

While an LME that eventually leads to bankruptcy could be viewed as a failure for a company, some may still consider it a success if the business is able to secure more time to pay debts as they come due.

“Bankruptcy is almost becoming an incidental part of corporate restructuring,” Stark of Brown Rudnick said.